THE OUTLOOK FOR BRAZIL

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-105-11-8-4
• Release Decision: RIPLIM
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: January 11, 2017
• Document Release Date: March 8, 2010
• Sequence Number: 8
• Publication Date: July 11, 1975
• Content Type: NIE

MORI/CDF -753961
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page and then
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I I July 1975
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N I E 93-1-75
THE OUTLOOK FOR BRAZIL
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SECRET
THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE UNITED STATES INTELLIGENCE BOARD CONCURS, EXCEPT
AS NOTED IN THE TEXT, AS FOLLOWS:
The following intelligence organizations participated in the preparation of
the Estimate:
The Central Intelligence Agency, the intelligence organizations of the Departments
of State, Defense, and Treasury, the National Security Agency, and the Energy
Research and Development Administration
Concurring:
The Deputy Director of Central Intelligence representing the Central Intelligence
Agency
The Director of Intelligence and Research representing the Department of State
The Director, Defense Intelligence Agency
The Director, National Security Agency
The Special Assistant to the Secretary for National Security, Department of the
Treasury
The Deputy Assistant Administrator for National Security, Energy Research and
Development Administration
Abstaining:
The Assistant Director, Federal Bureau of Investigation
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
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THE OUTLOOK FOR BRAZIL
PRECIS
Brazil's long-term economic prospects are good, but in the shorter
term it will experience reduced rates of growth, relatively high rates
of inflation, and large deficits in its balance of trade.
- Brazil's prospective growth rate for 1975 constitutes good per-
formance by current world standards, although it will be a dis-
appointment of expectations after the 10 percent annual growth
of 1968-1974.
- Discontent with economic conditions contributed to the unex-
pected success of the opposition party in last November's election.
- Should economic conditions appreciably worsen, the regime
would become increasingly vulnerable to attack by its domestic
critics and there could be a resurgence of economic nationalism.
President Geisel has undertaken to liberalize the political system
through a process which has come to be known as "decompression."
- The aim is to ease controls on political activity and to widen par-
ticipation in the political process.
- "Decompression" has had some important results, including the
remarkably free 1974 congressional elections and some easing of
press censorship.
- But it rests on a fragile consensus among various groups not to
challenge the status quo in any serious way, and it has run into
opposition from conservative members of the military hierarchy.
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-- The outlook for political liberalization in Brazil, although better
than at any time since 1968, is still not particularly favorable.
-- A return to civilian rule in the next few years is highly unlikely.
Pragmatic considerations, particularly economic ones, will continue
to guide the formulation of Brazilian foreign policy.
-- Preferential treatment for Brazilian exports will be a primary
goal, and protectionist measures by the developed countries will
be viewed as inimical to Brazil's vital interests.
- Brazil has aspirations to a role as an emerging world power, and
its policymakers have a sophisticated understanding of the reality
of economic interdependence and of the constraints imposed on
Brazil's autonomy by its need for foreign capital, technology, and
raw materials.
- Nonetheless, Brazil remains an underdeveloped country, and it
will side with such countries on many issues in order to secure
economic concessions and to force a redistribution of the world's
wealth to its own advantage.
-- Brazil cannot aspire to become spokesman for the Spanish-
speaking countries of Latin America, but wants to solidify its
position as the paramount power there so that it can play an in-
ternational role as an emerging major power.
While Brazil has almost certainly not made a decision to develop
nuclear weapons, the government does not want to foreclose this
option.
- It sees nuclear power as an important factor in supplying its future
energy requirements.
-It regards US pressure to sign the Nuclear Nonproliferation
Treaty as an unacceptable infringement of its sovereign rights.
-- It is purchasing from West Germany the technology and facilities
for a complete nuclear fuel cycle.
Within a framework of strong traditional ties, Brazil's foreign policy
will almost certainly diverge increasingly from that of the US.
- Disagreements are most likely to involve economic issues and
will probably become more numerous with the passage of time.
-- Despite differences on specific issues, Brazil overall will continue
to desire close and cooperative relations with the US.
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DISCUSSION
BACKGROUND
1. Eleven years have passed since the military-
led rebellion which overthrew leftist-oriented Presi-
dent Joao Goulart on March 31, 1964. At the time,
most civilians, including politicians who backed
the coup, assumed that the intervention was of the
sort well established in the Brazilian political tradi-
tion and that power would soon revert to civilian
hands. Most military leaders, however, came to see
their role in the reformation and development of
Brazil as a longer-term undertaking. The succeeding
years brought a series of measures which progres-
sively restricted political activity and consolidated
military control. These measures were justified as
necessary to transform Brazil into a developed na-
tion and to reform its political structure.
2. By the end of 1968, the regime had brought
the political opposition under effective control, and
by 1970 had virtually eliminated leftist terrorists.
To do this, it resorted to many repressive measures,
including press censorship, arbitrary arrest in cases
of suspected subversion, and in some cases torture
and murder of political prisoners. The regime's
tactics intimidated most Brazilian opponents who
remained in the country, while its economic suc-
cesses created a large degree of support among
important sectors of the population. Many Brazil-
ians were also inspired by the prospect of at last
realizing Brazil's elusive quest for national greatness.
3. A unique system has evolved in Brazil. While
the armed forces leadership retains ultimate author-
ity and discretion over basic policy, economic
strategy and operational functions are left to bureau-
cracies managed by technocrats and, in some cases,
by qualified retired military officers. Political power
is centered in the presidency, which since 1964 has
always been filled by a retired general. In the
economic area, the regime has been particularly
responsive to industrialist and entrepreneurial
groups concentrated in Sao Paulo, whose interests
have been reflected in the choice of economic plan-
ners and the policies followed.
4. Ernesto Geisel assumed the presidency in
March 1974 amid speculation that be would initiate
a political liberalization designed to increase popu-
lar participation in government and broaden the
the political base of the regime. Almost simulta-
neously, clouds began to appear on Brazil's eco-
nomic horizon. A remarkably free election took place
in November 1974 which resulted in significant
gains for the sanctioned opposition party and
aroused expectations in many quarters of greater
political freedom. At present, there is increasing
uncertainty about the future direction of the gov-
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ernment and the economy, and about the degree
of "decompression" that will be tolerated.
THE ECONOMIC SITUATION
5. With the possible exception of national secur-
ity, economic development has remained the prin-
cipal preoccupation of the regime established in
1964. The Brazilian economy experienced a reces-
sion from 1964 to 1967, a period during which in-
flation was brought to a manageable level. But the
drastic economic measures taken during that period
laid the basis for an impressive period of expansion
under the direction of Finance Minister Delfirn
Neto (1967-1974). During 1968-1974, gross national
product (GNP) grew by about 10 percent each
year (see Figure 1).
6. In the politically sensitive area of inflation,
Brazil had considerable success through 1973. The
official figures for annual rates of inflation fell
progressively from more than 90 percent in 11 ?64
to a low of 15.5 percent in 1973. The acc ra of
these figures has often been questioned, h e er,
and the rate for 1973 concealed a large ele of
repressed inflation which was reflected in t e ch
higher rate for 1974. Despite continuing i fl ti in,
a complex system of automatic monetary co r et'on
(commonly called indexing 1) has helped r ti n-
alize economic decision-making and encour g o-
mestic savings.
7. The Brazilian economic boom has be ar-
acterized by exceptionally strong growth in t in-
dustrial sector and in exports. Industrial pro u t on
has increased by nearly 150 percent since 1 nd
in 1973 alone it increased by 15 percent. T e u o-
mobile and chemical industries have sho he
largest increases, but all major industries b v x-
panded at an impressive pace, with the in du t ial
sector representing a growing share of tot 1 P
(25 percent in 1967 to 30 percent in 1974). A p o-
gram of domestic export incentives and a s ri s of
frequent mini-devaluations have helped keep B a-
zilian products competitive on the world t.
Since 1969 the total value of exports has mo e n
doubled, and in 1973 the figure jumped by 5 p r-
cent over the previous year. Manufacture r d-
ucts have experienced the greatest increase, n a ly
doubling their share of the total. Nonetheles, ee
fourths of Brazilian exports are still primary r d-
ucts and semimanufactures.
8. Development planning for 1975-1979 e e is
a change of emphasis from concentration on e t in
dynamic industries toward a more balanced h
of the whole economy. The planning stresses ri e
for import substitution in capital goods d r w
materials, and stimulation of internal consu p i n.
It also reflects a growing realization that, g v en
the changing price picture in primary pr d c s,
'This is the technique of adjusting the nominal ale of
a wide range of assets and contracts such as gov nt
bonds, rents, and savings accounts, to a so-called o je ti e
price index. The value of a financial transaction or as t is
automatically readjusted over time so that it does of I se
"real" value, thus reducing the need to anticipate th e e is
of inflation when the transaction is originally negoti to .
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1959-100
Figure 1
Growth of Brazil's GNP, Industry and Agriculture
Brazil's Annual Increase in Real GNP
Percent
1960 61 62 63 64 65 66 67 68 69 70 71 72 73 74
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Brazil's future prosperity may depend more on de-
veloping its agricultural potential than on its ability
to market its manufactures abroad. The planning
de-emphasizes grandiose projects such as the Trans-
Amazonian highway, and it cautions against exag-
gerated expectations for growth.
9. Despite the phenomenal growth of the Bra-
zilian economy during the past six years, severe
problems remain. Development has been uneven
and concentrated in the center-south, particularly
in highly urbanized areas in the states of Rio de
Janeiro, Sao Paulo, and Minas Gerais. Other parts
of the nation have done much less well. The north-
east, for example, remains seriously underdeveloped
despite many government attempts to encourage
economic activity in the area. Inequities in income
distribution persist, with the benefits of growth
heavily concentrated at the highest income levels.
Additionally, millions of Brazilians continue to live
on the fringes of the money economy and minimum
wage laws and literacy campaigns have yet to reach
them.
10. Strains are developing that will almost cer-
tainly diminish Brazil's sustained high rate of
growth for the next year or two. Although the gov-
ernment has remained publicly bullish about the
economic outlook, the growth rate will probably
drop to about 5 percent or less this year and chances
are at least even that it will be no better in 1976.
A growth rate of about 5 percent would still repre-
sent good performance, particularly in comparison
with stagnation in the developed world, but would
mean a substantial drop from the 10 percent aver-
aged since 1968, the year the "miracle" began.
11. Chief among Brazil's problems is the increas-
ing deficit in the balance of trade, which has be-
come a constraint on economic growth (see Figure
2). Attention has been focused primarily on the
skyrocketing expenditures for imported petroleum
(about 80 percent of Brazil's consumption), which
more than tripled during 1974, but Brazil's outlay
for imported goods has jumped by extraordinary
amounts in all major commodity groups. Exports
continued to increase at a respectable rate during
1974, but not rapidly enough to compensate or the
soaring costs of imports. The combined trade e i it
and outflow for services produced a deficit -
rent account of approximately US $7 billion i 1 7 .
12. During the past five years, Brazil has been
able to offset its current account deficit by a tr c -
ing massive inflows of capital from abroad. New
direct foreign investment rose from US $63 11 ill. ion
in 1968 to about $1 billion in 1974, and the total
accumulated direct foreign investment (inc n
reinvested profits) climbed from $3.6 billion t 6.
billion in the same period. The US accounts f r h
largest share of direct foreign investment with b t
37 percent of the total, but Japan has increased its
investment more rapidly than any other nation i
the last three years and now accounts for e
percent of foreign direct investment. The bulk
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Brazil's Trade Balance
Million Dollars FOB.
10,000
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Figure 2
70 71 72 73
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foreign capital has entered Brazil in the form of
medium- and long-term loans and financial credits,
which provided a net inflow of US $4.6 billion in
1974 alone.
13. The influx of foreign capital has had a salu-
tary effect on the growth of the Brazilian economy,
but it has also increased the degree of foreign
ownership in important sectors. In view of nation-
alistic sentiments, this has exacerbated a politically
sensitive situation. A 1973 survey reported that
among the top 30 firms (in terms of gross sales),
18 were foreign-owned, eight government-owned,
and only four Brazilian privately-owned. Foreign-
owned companies predominate among the largest
firms in capital goods, consumer durables and non-
durables, and intermediate products.
14. By the end of 1973, the entry of foreign capi-
tal had enabled Brazil to accumulate exchange re-
serves in excess of US $6 billion, which gave it
the seventh-highest figure in the world. Although
foreign capital continued to enter the country in
large amounts during 1974, the inflow was not suf-
ficient to fill the gap on current account. Brazil
lost more than $1 billion in reserves during 1974,
and the total stood at less than $4.2 billion by the
end of May 1975. The ratio between net foreign
debt and exports, which had reached a low point
of 1.04 in 1973, climbed to 1.52 by the end of 1974,
and will increase further in 1975-reflecting a
worsening foreign debt position. A lowered growth
rate and strict import controls will dampen demand
for imports this year.
15. The Geisel administration has meanwhile re-
doubled its efforts to secure foreign capital. The
Finance Ministry has reduced the minimum term
for foreign loans from ten years to five, while slash-
ing taxes on foreign interest payments and other
charges on foreign loans. The goal is clearly to
maintain Brazil's attractiveness for foreign invest-
ment. Despite some recent improvement in receipts
of foreign capital, the efficacy of such measures re-
mains doubtful. Brazilian efforts to secure Arab
petrodollars for investment projects have so far
met with only minimal success, but negotiations
with Kuwait and Saudi Arabia are continuing and
might provide needed foreign capital which is in
short supply under current market conditions.
16. External and internal pressures have aggra-
vated Brazil's chronic problem with inflati n. he
downward trend in the inflation rate was d a ti-
cally reversed in 1974, when official figures showed
a general price increase of about 35 percen , re
than double that of 1973. It appears probable t at
high inflation rates will plague Brazil for so e i e
to come, because of the world-wide inflation
trend, stringent import controls, and the G i,el
administration's policy of more liberal w g n-
FOREIGN POLICY
17. In recent years, Brazil has become more
closely integrated into the world economy. Conse-
quently, economic considerations have bee ary e a
much more important factor in Brazilian or i n
policy.
18. Brazil continues an aggressive search f r
markets for its products, not only in the ind st ' 1-
ized Western nations, but also among corn n' t
and developing countries as well. It has altered i s
positions on international issues in an atte p to
eliminate points of friction with trading pates.
Brazil has intensified its relations with the Soviet
Union, recognized Communist China, and up ra d
its representation in Eastern Europe; each o these
movements has been accompanied by sign fi a t
economic initiatives. Even before the Port g e e
coup of April 1974, Brazil abandoned its tacit s
port of Lisbon's policy in Africa in hopes of se u n
economic and diplomatic advantages in Bl
Africa. Trade figures reflect the success of r z
ian efforts. The US and Western Europe b u l t
more than three fourths of Brazil's exports in 196
but purchased only slightly more than half in 1 7
During the same period, Brazil's exports to co t
other than the US and Western Europe inc a e
by more than 700 percent (from US $297 ill o
to $2.5 billion).
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19. Brazil is heavily dependent on imported oil,
most of it from Arab sources. The energy crisis
brought about an abrupt shift in Brazilian foreign
policy-from "equidistance" in the Arab-Israeli dis-
pute to support of the Arab cause. Brazil is attempt-
ing to exploit this change to secure investment funds
from Kuwait and Saudi Arabia. The overseas arm
of PETROBRAS, Brazil's state petroleum monop-
oly, is expanding oil exploration and production
activities in the Middle East, and Brazil is pursuing
other opportunities for trade, investment, and tech-
nical assistance in the region.
20. Simultaneously, Brazil is attempting to diver-
sify its sources of energy to make itself less vulner-
able to politically inspired market manipulations.
It is investing in the oil and gas fields of eastern
Bolivia and has concluded petroleum import agree-
ments with the Soviet Union, Peru, Nigeria, and
Mexico. Urgent efforts to develop hydroelectric
power in the Parana basin have produced strength-
ened ties with Paraguay and have aggravated Bra-
zil's always prickly relationship with Argentina. The
government is encouraging the exploitation of Bra-
zil's low-grade coal deposits as an alternative to
use of oil and high-quality imported coal. Energy
sources are also being expanded through the de-
velopment of nuclear power.
21. Brazil's drive to increase domestic sources of
oil has led to intensified off-shore explorations, and
PETROBRAS has discovered a major oil field off
Rio de Janeiro state. Its size is uncertain, and it
cannot be brought into production until 1978 or
1979 at the earliest. The find raised overly opti-
mistic hopes of near self-sufficiency in oil by the
early 1980s. At best, the new discoveries will enable
Brazil to meet 50-80 percent of its domestic demand
for petroleum by that time, compared with 20 per-
cent at present. PETROBRAS' success makes it
highly unlikely that Brazil will reverse its tradi-
tional policy and allow foreign oil companies to en-
gage in exploration and production activities in
Brazil.
22. Brazil's economic advances, along with its
physical size and large population, have contributed
to a feeling akin to "manifest destiny" as an emerg-
ing major power. Brazil exerts an increasing influ-
ence in the economics and politics of Paraguay,
Uruguay, and Bolivia, and fear of Brazilian power
has produced defensive reactions in Argentina,
Peru, and Venezuela. Brazil has attempted to re-
assure the Spanish-speaking nations of the continent
that its intentions are non-aggressive, but it remains
apprehensive that sub-regional organizations such
as the Andean Group may be used to thwart Brazil's
interests, particularly if Argentina should join. In
Latin America, Brazil wants to solidify its position
as the paramount power. It cannot realistically as-
pire to become spokesman for the area, since the
Spanish-speaking countries will not grant it such a
role, but it does want a secure base from which it
can exercise what it considers to be its international
role as an emerging major power.
23. Not yet developed, but clearly aspiring to
play a world role, Brazil finds itself in something
of a dilemma. On the one hand, it has a foot in the
camp of less developed countries bent on securing
economic concessions from the industrialized na-
tions and gaining a greater share of the world's
wealth. On the other hand, Brazil's political orienta-
tion makes it suspect to the Third World, and the
closer Brazil comes to realizing its developmental
goals, the less it has in common with these countries.
24. Brasilia seeks to minimize the difficulties
posed by this dilemma, and to capitalize on oppor-
tunities to advance its economic interests and en-
hance its political position. Thus Brazil supports
efforts by less developed countries to gain prefer-
ential access to markets in the major countries and
higher prices for exports of primary products. In
these efforts, Brazil seeks to project itself as a re-
sponsible, reasonable defender of Third World in-
terests, capable of standing up to the industrialized
nations. Brazil's advocacy of such interests falls
well short, however, of outright confrontation with
the developed countries. Brazil has increasingly
come to believe that commodity cartels are, in the
long run, impractical for the products it exports.
It has been hurt by OPEC's success in raising petro-
leum prices, and its dependence on other essential
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raw materials would make it vulnerable to reprisals
if it assumed a position of confrontation with the
developed countries. The principal thrust of cur-
rent policy is to concentrate on bilateral agreements
which meet Brazil's particular interests, while re-
garding international commodity agreements as a
means of preserving favorable terms of trade for
the primary products Brazil produces.
25. The importance to the Brazilian economy of
expanding exports has made Brazil acutely sensitive
to protectionist measures by the US and other de-
veloped nations. The controversy over counter-
vailing duties on shoes illustrates Brazilian fears
that the US will take similar action against a wider
range of Brazilian products, and certain provisions
of the US 1974 Trade Reform Act have reinforced
such anxieties. Pending complaints against other
imports from Brazil threaten to complicate US-
Brazilian relations in coming months. Brazilians
are convinced of the need for the US and the rest
of the developed world to grant preferential treat-
ment to manufactured exports of developing nations
as well as to their primary products and semi-
manufactures. Despite its pretentions to global im-
portance, Brazil is not yet a developed nation, and
inclusion of its products in a general system of pref-
erences through multilateral trade negotiations re-
mains one of the primary goals of Brazilian foreign
policy.
26. Within the framework of still strong tradi-
tional ties, there are increasing divergences between
Brazil and the US, particularly on economic issues.
Although there is a large degree of exaggeration in
the idea that Brazil has followed the US lead since
1964, Foreign Minister Silveira (who advocated an
"independent foreign policy" in the early 1960s)
has repeatedly insisted that Brazil is not subject to
"automatic alignments." Pragmatic, non-ideological
initiatives to expand Brazil's international options
have met with little effective resistance in Brazil,
even from conservative elements suspicious of re-
lations with Communist countries.
27. The government remains strongly opposed to
communism on ideological grounds, and despite
Brazil's growing economic relations with co u ist
countries, the armed forces are mistrustful oft eir
political motives, particularly the Soviet Union. he
government vigorously suppresses any overt o-
mestic activities by the Communist Party and ter
leftist groups, even while it is increasingly willing
to deal internationally on a pragmatic basis with
Marxist regimes. Its ideological bent and tr di i nal
ties with the US (particularly strong wi i he
armed forces) give the regime a pro-Wes r ri-
entation, but from the Brazilian standpoint, East-
West rivalry is of only minor importance i e id-
ing Brazil's position on most internationalise of
primary interest to it,
28. Brazil regards US pressures to sign h u-
clear Nonproliferation Treaty as an unac e table
infringement of its sovereign rights and 1 ens
of fixing global power relationships in their present
form. Brazilian intransigence on this questi n ;terns
not only from its apprehension over Argentina's
lead in nuclear technology but, more funda e tally,
from its self-image as an emerging world power.
Brazil will not accept any blanket treaty res i ti ns
against peaceful nuclear explosions. It view he
proliferation of ever more sophisticated e p ns
among the super powers as the basic problem in
achieving disarmament.
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29. Brazil sees atomic energy as an important
factor in supplying its future energy requirements;
its first nuclear power plant should begin operation
in 1979, and eight others are planned through 1990.
Failure to secure a guaranteed supply of enriched
uranium from the US for the planned power reac-
tors caused Brazil to look elsewhere for cooperation
on nuclear matters. West Germany has agreed to
supply Brazil with technology and facilities for a
complete nuclear fuel cycle including a fuel fabri-
cation facility, eight power reactors, a uranium
enrichment facility using the commercially un-
proven Becker nozzle process, and a fuel reprocess-
ing plant. All nuclear equipment, facilities, and
materials including technology will be subject to
International Atomic Energy Agency safeguards.
30. The Brazilians have almost certainly not made
a decision to develop nuclear weapons, but the
government does not want to foreclose this option.
If Brazil were to embark on such an endeavor in
the near future using indigenous facilities, it prob-
ably could develop a nuclear device by the early
1980s, by circumventing safeguard agreements. Nu-
clear testing and further development probably re-
quiring at least two years would be necessary to
provide a weaponized version suitable for delivery
by combat aircraft.
DOMESTIC POLITICS
31. The principal constituency of the government
since 1964 has been the Brazilian armed forces.
Active or retired senior military officers occupy the
presidency and several key positions in the cabinet,
and all fundamental policy decisions are considered
with an eye to their acceptability to the armed
forces. Enormous powers are concentrated in the
executive through a series of Institutional Acts.
These acts have enabled the military to dismantle
the old political system, to cancel certain electoral
mandates, and to suspend the right of habeas
corpus. They were also used to close Congress for
a time.
32. The regime has drawn its principal civilian
support from businessmen who have benefited con-
spicuously from the developmental and fiscal poli-
cies followed since 1964, particularly industrial and
commercial interests concentrated in Sao Paulo. In
addition, the government has enjoyed considerable
backing from the middle and upper-middle classes
and from professionals, technocrats, and civil serv-
ants. Much of this support is based on pragmatic
economic interests, i.e., a loss of political freedom
and influence has been accepted as the price of
economic development and prosperity.
33. The principal opponents and critics of the
regime since 1964, aside from extremists and out-
right terrorists, have been elements of the clergy,
students and intellectuals, and some politicians and
labor leaders. None of these alone or in combina-
tion-poses a serious threat to the regime. Members
of the clergy, including portions of the church
hierarchy, have from time to time expressed their
concern about abuses of human rights in Brazil,
including the resort to arbitrary arrests and the use
of torture. These are issues on which most of the
Church as an institution can unite, but it has rarely
been an important political force in Brazil. The
government-controlled labor unions have never ex-
ercised much political influence in Brazil, and since
1984 their power has been reduced to almost
nothing.
34. The regime has been strengthened by eco-
nomic success and by the belief widely held in
Brazil that the country is at last on its way to
achieving its rightful place in the world. This has
bolstered its view that only an authoritarian, well-
integrated government, free from the conflicting
interests represented by politicians, can propel Bra-
zil from the ranks of the underdeveloped countries
to the status of a world power. Conversely, a slow-
down in economic growth will almost certainly in-
crease opposition to the administration. It would
also raise questions about the military-based re-
gime's unique capacity to fulfill its self-proclaimed
role and about the legitimacy of the military's claim
to power.
35. By 1974 an annual growth rate of 10 percent
had come to assume an almost magical quality, and
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the anticipated fall to a growth rate of 5 percent or
less in 1975 represents a disappointment of expecta-
tions. Consequently, the administration has initiated
a series of announcements designed to prepare the
public psychologically. Working- and middle-class
citizens were already showing a certain amount of
restiveness because of the high cost of living, short-
ages, tight consumer credit, and the failure to sig-
nificantly improve real wages. Brazil requires a 3
percent annual growth in GNP merely to maintain a
constant level of GNP per capita.
36. In anticipation of embarrassing returns in the
congressional elections of November 1974, the ad-
ministration authorized an "emergency" wage ad-
justment and relaxed controls on consumer credit.
This was the first major departure in the regime's
incomes policy since 1966, when the system of an-
nual adjustments in wages was adopted. The move
was consistent with the general policy of the Geisel
administration-embodied in the new five-year
plan-which places greater emphasis on a more
equitable distribution of wealth. It had little ap-
parent effect on the size of the protest vote, how-
ever.
37. Discontent with economic conditions contrib-
uted to the unexpectedly strong wave of support
for the officially-sanctioned opposition party, the
MDB (Movimento Democratico Brasileiro), par-
ticularly in the more developed states. Although the
Brazilian congress has been virtually impotent,
many voters seized the opportunity to express their
displeasure with the administration's economic
policies by voting against candidates of ARENA
(Alianca Renovadora National), the party of the
government. The magnitude of the victory surprised
even the leaders of the opposition. The MDB won
about 60 percent of the total senatorial vote, nearly
half of the seats in the lower house of Congress,
16 out of 21 contested Senate seats, and control of
legislative assemblies in several states including the
most important: Sao Paulo, Rio Grande do Sul,
Parana, Guanabara, and Rio de Janeiro (the last
two joined in a single state in March 1975).
38. President Geisel's commitment to holding the
elections and abiding by the results symbolizes his
pledge to liberalize the political system th 01 g a
process which has come to be known as "dec p es-
sion." The term has no precise meaning; r a ly,
it represents an easing of controls on o it cal
activity and a widening of participation in t o iti-
cal process. Geisel and his supporters ap e r to
want the benefits which derive from a systerr tat
has the appearance of legality, is not unduly rE pi es-
sive, and embodies rules and procedures designed
to prevent unauthorized acts by the police n he
military security services. Geisel shows no Si n,
however, of relinquishing the vast powers h in-
herited. He and his supporters share the co vi t' on,
almost unanimous within the military establishment,
that the old politics must not be allowed to r t rn,
and that come what may, the Institutional Acts
must become a part of the Brazilian constitutional
system.
39. The process of decompression has had a tu-
ber of other manifestations. It has include a at-
tempt at dialogue with liberal clerics and students
and an effort to restore some of Congress' 1 n dis-
sipated prestige. It has been reflected in see al of
Geisel's appointments, most notably that of a ral
Golbery do Couto e Silva as Chief of te C vil
Household. Golbery has led the effort to re t ild
relations with the Church and the academ c m-
munity. There has also been an easing of pr ss c n-
sorship. Previously taboo subjects are no be hg
cautiously aired in the media, but editors, fo be
most part, have exercised great restraint or f ar
of government reprisals.
40. The supporters of decompression have a tu-
ber of interrelated reasons for pushing it at t is
time. They are probably spurred by an acute aware-
ness that the military has exercised power i Brazil
for over 11 years, despite various statement but
restoring democratic rule. Indeed, each of is l's
immediate predecessors promised to restore a c-
racy in his term of office. Geisel also appea s to be
seeking a broader base of support for the e i e,
particularly in view of the less favorable n is
prospects. Some proponents of political lib r li a-
tion have apparently concluded that by a.lo wing
limited freedom to estabished institutions, in by
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resorting to extraordinary measures as little as pos-
sible, Brazil will in the longer run be less subject
to political tensions and easier to govern. Institu-
tional self-interest also plays a part; there is concern
within the military that if individuals and groups
cannot let off steam, there will ultimately be an
erosion of confidence, or even an explosion, that
would affect the prestige and position of the
military.
41. Geisel's efforts at liberalization are running
into opposition from conservative members of the
military. Some, particularly in the security forces,
feel that the President is creating an atmosphere of
permissiveness that threatens the revolution itself.
There is concern that subversives will be embold-
ened or that past excesses committed in the name
of national security will come to light. The Presi-
dent's top intelligence officer, Major General Bap-
tista Figueiredo, is one of a number reportedly dis-
turbed by recent rapprochements with the USSR
and China, and by the administration's relatively
conciliatory attitude toward domestic dissidents.
The Army Minister, General Frota, also reportedly
among the opponents of liberalization, at times has
sought to convey the misgivings of the conservatives
to the President. The conservatives have been
alarmed by Geisel's proclivity to follow the advice
of General Golbery and Foreign Minister Silveira
and ignore their position on important issues. Gol-
bery has become the principal target of hardliners
determined to check or reverse the process of politi-
cal liberalization.
42. The intelligence services believe that the gov-
ernment has become increasingly dissociated from
its military base, sacrificing support from the armed
forces in its desire to cultivate civilian favor. They
support a more equitable distribution of wealth, in
order to eliminate disparities which "subversives"
can exploit, but they also advocate stricter censor-
ship and the more vigorous prosecution of dissidents
and subversives. They are clearly disturbed by the
Portuguese revolution and by political violence in
Argentina, and fear a new outbreak of terrorism in
Brazil if vigilance is lessened. They oppose any
political thaw which would allow greater freedom
of expression for "communists"-a category which
in their eyes includes many left-wing priests, jour-
nalists, intellectuals, professors, students, and poli-
ticians.
43. There is considerable evidence that Geisel
does not have full control of the activities of the in-
ternal security forces. Even though the President
and top military officials have expressed firm op-
position to the torture of political prisoners, such
practices continue, while the President and other
authorities have been given incomplete or mislead-
ing information about these activities. The pattern
of political arrests since Geisel's inauguration sug-
gests strongly that the security forces operate with
considerable independence, selecting targets de-
signed not only to intimidate critics of the military
regime and other "subversives," but also to embar-
rass the administration and impede its attempts to
open up the political process.
OUTLOOK
44. Although long-run prospects for Brazil's econ-
omy are good, it will experience a slower rate of
growth, high inflation, and serious trade imbalances
during the next year or two. The gravity of these
problems will depend to a great extent upon ex-
ternal economic forces over which Brazil has little
or no control. The uncertainty of commodity price
movements and of the speed of recovery from the
world-wide recession are factors which complicate
any prediction. Should economic problems increase
appreciably, the Geisel administration and the
"revolution" would come under further attack from
various elements of society. At the same time as
grounds for criticism become increasingly evident
military hard-liners will oppose more vigorously any
opening of the regime to wider participation.
45. Another possible consequence of an economic
slowdown is a resurgence of economic nationalism.
A serious downturn would tend to further debilitate
the domestic private sector relative to foreign firms
which have access to foreign sources of credit
through parent companies and are therefore better
able to withstand economic contractions. Increased
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dependence on foreign sources of capital and a
widening trade deficit may make servicing the
foreign debt more difficult. Such conditions would
bring strong pressure from nationalists in both mili-
tary and entrepreneurial circles to revise the present
policies which permit virtually unrestricted partici-
pation of foreign capital in the Brazilian economy
and could bring about stricter controls of foreign-
owned companies.
46. Doubt remains about how far Geisel is will-
ing or able to go in terms of decompression. He
undoubtedly realizes that his power ultimately
depends on the backing of the armed forces. Civil-
ian support for his administration and his austere
personal style is lukewarm at best, and greater
freedom of expression is unlikely to result in praise
for the regime or for the President himself. Geisel
will probably moderate his political openings to the
civilian sector according to his readings of the limits
of military conservatives' forebearance. Should he
overstep those limits, or should the opposition press
too hard, he will be subject to increasing pressures
to restore political restrictions and might be forced
to replace key officials with others more acceptable
to the hard-liners.
47. Given the military's concern for maintaining
an appearance of order, unity, and rationality in
government, Geisel will probably complete his five-
year term in office, although some observers insist
he would resign rather than yield against his judg-
ment to demands by hard-liners for greater repres-
sion. Differences between the President and the
hard-liners could, however, affect the selection of
a successor. Although a choice is unlikely to become
a matter of urgent concern within the military for
another two years or so, it is possible that the con-
servatives could force Geisel to accept a hard-line
candidate not of his own choosing for the presidency
in 1979.
strength. On the other hand, Geisel cannot i
the opinions of the hard-liners, particularly if
reflect those of a substantial sector of the
forces. In the improbable event of a crisis o
dente, senior officers would be hard put to
between loyalty to Geisel and his policies
desire to maintain unity within the armed
Past experience indicates the choice woul
n ore
t ey
48. An overt clash within the armed forces is
extremely unlikely. Geisel has loyal officers in most
key command positions. It would be very difficult
for disgruntled officers to organize a successful con-
spiracy even if they were inclined to do so, and at
present they have neither the inclination nor the
ably be the latter.
ed
fi-
he
rib-
49. The 1974 congressional elections immensely
complicated Brazil's political future. Des it (-
forts by ARENA and the administration to r s nt
the MDB gains as a healthy sign of dev 1 g
political maturity and proof that democracy (xi ts
in Brazil, the returns have raised question a ut
one of the justifications for the regime's c1 i on
power. The MDB leadership has stressed th t it
intends to be a "responsible" opposition, but it c-
tions will be severely circumscribed by the 1 its
of "responsibility," the definition of which i en a ns
with the administration. The MDB will not e p r-
mitted to question the bases of the regime, n t e
implicit threat of reprisals will limit the extent to
which the opposition leadership will wish t criti-
cize the administration. Some more radic 1 con-
gressmen may, however, ignore such prose 'p i s
and pursue sensitive issues on which the d n-
istration would prefer to remain silent. The opposi-
tion has, in effect, received a mandate of a sort
which will be very difficult, if not impossible, to
exercise.
50. The administration, for its part, wou
and carry out a renewed policy of widespr
pression, but it retains the legal and instit
apparatus for a selective crackdown if it fee
challenged. To date, military reaction to th
tions has been muted and cautiously optimi
the most part, and one group of junior
reportedly issued a manifesto calling for in
popular democracy. Some high-ranking o
nevertheless, questioned the wisdom of per
the elections and applied pressure (witho
cess) to negate their results. Continued
acceptance of the election results is canting
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a cooperative attitude on the part of the opposition.
Should MDB politicians seriously provoke the ad-
ministration, it will probably respond decisively-
possibly with exemplary punishment and intimida-
tion.
51. In general, the outlook for political liberaliza-
tion in Brazil, although better than at any time
since 1968, is still not particularly favorable. Any
significant easing of restrictions on the press or the
Congress inevitably results in criticism of the re-
gime which the military has been psychologically
unable to accept. A continuing theme which retains
its appeal within the armed forces is the desire to
remove government from the corruption of political
forces until such time as those forces could be re-
formed to work harmoniously for the common good.
An elected legislature, even in its emasculated
form, represents a frequent irritant, not only to
hard-line elements, but to a wide spectrum of the
armed forces.
52. It is difficult to envision the development of
conditions under which the military would volun-
tarily permit a return to civilian rule. Even if the
armed forces were willing, the country lacks civilian
politicians with the national stature and a sufficient
constituency to assume control. Cancellations of
political rights and political arrests decimated the
ranks of politicians, and the regime has undercut
civilians who have tried to achieve national promi-
nence. The two authorized parties are artificial ag-
gregations which are now divided into factions and
would almost certainly disintegrate into their com-
ponent elements if allowed to do so. With rare ex-
ceptions, leading military figures have declined to
take an active role in either party, and the con-
tempt of the officer corps for professional politicians
makes very unlikely a fusion of the constitutional
political structure with de facto sources of power.
The military-based regime has never trusted its own
civilian political arm, and there is no evidence that
this will change in the near future.
53. Brazil's foreign policy will almost certainly
diverge increasingly from that of the US as it pur-
sues its own interests throughout the world. Dis-
agreements are most likely to involve economic
issues such as trade, nuclear proliferation, and the
role of multinational corporations. Brazil will con-
tinue to side with the less developed countries on
many issues, as it strives to escape its traditionally
dependent role vis-a-vis the US and Western
Europe. In Latin America, Brazil has no desire to
act as a surrogate for the US and finds that con-
spicuously solicitous treatment by Washington com-
plicates relations with its Spanish-American neigh-
bors.
54. Despite differences on specific issues, Brazil
will continue overall to desire close and cooperative
relations with the US, which will continue to be
very important to Brazil in the economic and secur-
ity fields. Brazil clearly recognizes the realities of
economic interdependence and the constraints im-
posed upon its own autonomy by its need for foreign
capital, technology, and raw materials. As a rapidly
industrializing society of continental dimensions,
Brazil will be a growing market for US exports and
US foreign investment. It recognizes the US as the
primary defender of the non-communist world and
identifies with US security objectives, particularly
in the hemisphere.
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SECRET
1. This document was disseminated by the Central Intelligence Agency. This copy
is for the information and use of the recipient and of persons under his jurisdiction on a
need-to-know basis. Additional essential dissemination may be authorized by the follow-
ing officials within their respective departments:
a. Director of Intelligence and Research, for the Department of State
b. Director, Defense Intelligence Agency, for the Office of the Secretary of
Defense and the organization of the Joint Chiefs of Staff
c. Assistant Chief of Staff for Intelligence, Department of the Army, for the
Department of the Army
d. Director of Naval Intelligence, for the Department of the Navy
e. Assistant Chief of Staff, Intelligence, USAF, for the Department of the Air
Force
f. Deputy Assistant Administrator for National Security, Energy Research and
Development Administration
g. Assistant Director, FBI, for the Federal Bureau of Investigation
h. Director of NSA, for the National Security Agency
i. Special Assistant to the Secretary for National Security for the Department
of the Treasury
j. The DCI's Deputy for National Intelligence Officers, for any other Depart-
ment or Agency
2. This document may be retained, or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
arrangement with the DCI's Deputy for National Intelligence Officers.
3. When this document is disseminated overseas, the overseas recipients may
retain it for a period not in excess of one year. At the end of this period, the
document should either be destroyed, returned to the forwarding agency, or per-
mission should be requested of the forwarding agency to retain it in accordance with
IAC-D-69/2, 22 June 1953.
4. The title of this document when used separately from the text should be clas-
sified: FOR OFFICIAL USE ONLY.
No Objection to Declassification in Part 2010/03/08: LOC-HAK-105-11-8-4
 No Objection to Declassification in Part 2010/03/08: LOC-HAK-105-11-8-4